In 1H21, Co. started to generate products sales; the smooth launches of two drugs partially validate its commercial execution
We think Co. also deliver sustainable value creation in the BD territory, such as its recent deepening collaboration with Pfizer
We continued to flag CStone as a decent overlooked play in the biotech space, w/ multiple NT catalysts ahead. Reiterated BUY
Product sales starts in 1H21
CStone started to generate product sales in 1H21 (~RMB79mn vs. nil in 1H20), primarily due to the new launches of GAVRETO (pralsetinib, RMB45.8mn) and AYVAKIT (avapritinib, RMB33.6mn). Adj. net loss (excluding the share-based payment and non-recurring items) widened by ~23% to RMB700mn in 1H21, mainly owing to heavy R&D expenses (stable at RMB513mn) and increased selling expense (up to RMB134mn from RMB24mn in 1H20) for expanding sales team and promoting the product sales.
A transition year from biotech to biopharma
Co. highlighted its go-to market strategy enabled a rapid and broad day on sales for both products, which were supported by 1) well-prepared DTP networks across 64 major cities in China and 2) broader patient accessibility by inclusion into 20 local government-led commercial insurance and targeting 2021 NRDL inclusion; and 3) increased physician acceptance by inclusion into >7 national treatment and diagnosis guidelines. We anticipate this strategy will continue to smooth future commercial launches, such as ivosidenib in 1H22E (ivosidenib’s NDA has accepted by NMPA for r/r AML pts w/ susceptible IDH1+ with priority review in Aug 2021).
R&D strength validated by Pfizer collaboration extension
CStone and Pfizer in 3Q20 forged a strategic partnership for development and commercialization CStone’s sugemalimab (PD-L1 inhibitor) in mainland China. In Jun ‘21, Pfizer extended its collaboration with CStone on development of lorlatinib (3rd Gen ROS1/ALK TKI) for 1st global pivotal study in ROS1+ NSCLC patients. We believe the extension of collaboration validated CStone’s clinical R&D strength.
Maintain BUY with STOP TP at HKD19.1
Major catalysts in 2H21E/1H22E: 1) sugemalimab 1st China NDA approval; potential US NDA submission by EQRx; 2) ivosidenib’s China NDA approval. The SOTP-TP is unchanged at HKD19.1. Co. is at the forefront of transformation from a biotech to a biopharma. Maintain BUY.